RISK FACTORS
An investment in our common stock involves significant risks. Before making an investment in our common stock, you should carefully read all of
the information contained in this prospectus supplement, the accompanying prospectus and in the documents incorporated by reference herein. For a discussion of risks that you should carefully consider
before deciding to purchase any of our common stock, please review the risk factors disclosed below, together with the other information in this prospectus supplement, the accompanying prospectus, and
the information and documents incorporated by reference herein and therein. Any of these risks, as well as additional risks not currently known to us or that we currently deem immaterial, may
adversely affect our business, financial condition, results of operations, and prospects, resulting in a decline in the trading price of our common stock and loss of all or part of your investment.
Risks Related to Development, Regulatory Approval and Commercialization of our Product Candidates
The currently reported results of the CONVERT study are based on top-line data for the first six months of
the study and may differ from complete study results once additional data are received and evaluated.
The reported results of our CONVERT study, which are discussed herein, consist of only top-line data from the first six months of the study.
Top-line data are based on a preliminary analysis of currently available efficacy and safety data, and therefore these currently reported results are subject to change following a comprehensive review
of the more extensive data we expect to receive for patients as of month six. Top-line data are based on important assumptions, estimations, calculations and information currently available to us, and
we have not received or had an opportunity to evaluate all of the six-month data from the CONVERT study. As a result, the top-line six-month results may differ from the full six-month data, or
different conclusions or considerations may qualify such top-line results, once the complete six-month data have been received and fully evaluated. In addition, the CONVERT study is ongoing, and
subsequent data from the treatment and off-treatment phases of the study may differ from the currently reported top-line results. If these top-line data differ from the results of the full six-month
data or subsequent data from patients during the remainder of the treatment phase or the off-treatment phase, our ability to obtain or maintain approval for, and commercialize, ALIS may be harmed,
which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
Our prospects are highly dependent on the success of our most advanced product candidate, ALIS. If we are
unable to successfully complete the development of, obtain or subsequently maintain regulatory approval for, and successfully commercialize ALIS, our business, financial condition, results of
operations and prospects and the value of our common stock will be materially adversely affected.
We are investing significant efforts and financial resources in the development of ALIS, our most advanced product candidate. Our ability to
generate product revenue from ALIS will depend heavily on the successful completion of development of, receipt of regulatory approval for, and commercialization of, ALIS.
Positive
results from preclinical studies of a product candidate may not be predictive of similar results in human clinical trials, and promising results from earlier clinical trials of
a product candidate may not be replicated in later clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials
even after achieving promising results in earlier stages of development. Accordingly, even if the full six-month
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data
for the primary endpoint are positive, such data may not be predictive of the results from the remainder of the study or the 312 study, or future trials related to ALIS.
In
addition, even if we believe our clinical trials for ALIS demonstrate promising results, regulators may decline to grant regulatory approval. For instance, in the fourth quarter of
2014, we filed a marketing authorization application ("MAA") with the EMA for ALIS as a treatment for, among other things, NTM lung disease in adult patients. The filing was based in part on data from
our phase 2 study in patients with NTM lung disease. In addition, we subsequently withdrew our MAA after the Committee for Medicinal Products for Human Use ("CHMP") concluded that the data
submitted did not provide enough evidence to support an approval. We currently expect to submit a new drug application ("NDA") to the FDA pursuant to Subpart H for ALIS based on the efficacy
data from the CONVERT study through month 6. Although we view the top-line six-month results from the CONVERT trial as promising, the FDA may not agree that this data is sufficient to support
submission or approval of our NDA under Subpart H.
Further,
even if we obtain approval for ALIS from a regulator, including from the FDA pursuant to Subpart H, such approval may be withdrawn under certain circumstances and
confirmatory clinical studies may be required and could fail to demonstrate sufficient safety and efficacy to support continued approval. For instance, if we obtain approval from the FDA based on the
NDA filing described above, the FDA may nonetheless conclude that the data generated from the remainder of the CONVERT study or in the 312 study is not sufficient to support continued approval of our
NDA.
We
do not expect ALIS to be commercially available in any market until we receive requisite approval from the FDA, MHLW, EMA or an equivalent regulatory agency. The failure to obtain or
subsequently maintain such approvals will materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
We may not be able to obtain regulatory approvals for ALIS or any other products we develop in the U.S.,
Japan, Europe or other markets. If we fail to obtain such approvals, we will not be able to commercialize our products.
We are required to obtain various regulatory approvals prior to studying our products in humans and then again before we market and distribute
our products, and the failure to do so will prevent us from commercializing our products, which would materially adversely affect our business, financial condition, results of operations and prospects
and the value of our common stock. The regulatory review and approval processes in the U.S., Japan and Europe require evaluation of preclinical studies and clinical studies, as well as the evaluation
of our manufacturing process. Securing regulatory approval to market our products requires the submission of much more extensive preclinical and clinical data, manufacturing information regarding the
process and facility, scientific data characterizing our product and other supporting data to the regulatory authorities in order to establish its safety and effectiveness. These processes are
complex, lengthy, expensive, resource intensive and uncertain. We have limited experience in submitting and pursuing applications necessary to gain these regulatory approvals.
As
described above, data submitted to regulators is subject to varying interpretations that could delay, limit or prevent regulatory agency approval. We may also encounter delays or
rejections based on changes in regulatory agency policies during the period in which we develop a product and the period required for review of any application for regulatory agency approval of a
particular product. For example, the FDA has designated ALIS for fast track, breakthrough therapy and qualified infectious disease product status, all programs intended to expedite or streamline the
development and regulatory review of the drug. If we were to lose the current designation under one or more of those programs, we could face delays in the FDA review and approval process. Resolving
such delays could force us or third parties to incur significant costs, could limit our
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allowed
activities or the allowed activities of third parties, could diminish any competitive advantages that we or our third parties may attain or could adversely affect our ability to receive
royalties, any of which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock. Even with these designations, there
is no guarantee we will receive approval for ALIS on a timely basis, or at all.
Similarly,
we are currently assessing our regulatory strategies with regard to orphan drug designation and other pathways that could expedite the development and regulatory review of
INS1007 in the U.S. and the EU, but we may be unsuccessful in pursuing such strategies. The FDA recently denied our initial request for orphan drug designation for INS1007 in non-CF bronchiectasis,
and we are evaluating our options, including whether to appeal this decision or
reapply for this designation based on a refined regulatory strategy. In addition, although we believe that INS1009 could be eligible for approval under Section 505(b)(2) of the Federal Food,
Drug, and Cosmetic Act ("505(b)(2)"), and thus could rely at least in part on studies not conducted by or for us and for which we do not have a right of reference, we may not obtain approval from the
FDA to use this pathway.
Approval
by the FDA does not ensure approval by the regulatory authorities of other countries. To market our products outside of the U.S., we, and potentially our third-party providers,
must comply with numerous and varying regulatory requirements of other countries. The approval procedures vary among countries and can involve additional product testing and administrative review
periods. The time required to obtain approval in these other territories might differ from that required to obtain FDA approval. In addition, we may be subject to fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products, operating restrictions (including with respect to our target market) and criminal prosecution if we fail to comply with applicable U.S. or
foreign regulatory requirements.
We have not completed the research and development stage of ALIS or any other product candidates. If we are
unable to successfully develop and commercialize ALIS or any other products, it will materially adversely affect our business, financial condition, results of operations and prospects and the value of
our common stock.
Our long-term viability and growth depend on the successful commercialization of ALIS and potentially other product candidates. Pharmaceutical
product development is an expensive, high risk, lengthy, complicated, resource intensive process. In order to conduct the development programs for our products, we must, among other things, be able to
successfully:
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Identify potential product candidates;
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Design and conduct appropriate laboratory, preclinical and other research;
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Submit for and receive regulatory approval to perform clinical studies;
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Design and conduct appropriate preclinical and clinical studies according to good laboratory practices and good clinical practices and
disease-specific expectations of the FDA and other regulatory bodies;
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Select and recruit clinical investigators and subjects for our studies;
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Collect, analyze and correctly interpret the data from our studies;
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Obtain data establishing adequate safety of our product candidates and demonstrating with statistical significance that our product candidates
are effective for their proposed indications, as indicated by satisfaction of pre-established endpoints;
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Submit for and receive regulatory approvals for marketing;
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Submit for and receive reimbursement approvals for market access; and
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Manufacture the product candidates and device components according to current good manufacturing practices ("CGMP").
The
development program with respect to any given product will take many years and thus delay our ability to generate profits associated with that product. In addition, potential
products that appear promising at early stages of development may fail for a number of reasons, including the possibility that the products may require significant additional testing or turn out to be
unsafe, ineffective, too difficult or expensive to develop or manufacture, too difficult to administer or unstable, or regulators may require additional testing to substantiate our claims. For
instance, as described above, although we view the top-line six-month results from the CONVERT study as promising, our clinical studies of ALIS for refractory NTM lung disease caused by MAC are
ongoing, and outcomes from those studies cannot be predicted. If we do not proceed with the development of our ALIS program in the NTM lung disease or cystic fibrosis ("CF") indications, certain of
our contract counterparties may elect to proceed with the development of these indications. Even if we are successful in obtaining regulatory approval for our product candidates, including ALIS, we
may not obtain labeling that permits us to market them with commercially viable claims because the final wording of the approved indication may be restrictive, or the available clinical data may not
provide adequate comparative data with other products. Failure to successfully commercialize our products will materially adversely affect our business, financial condition, results of operations and
prospects and the value of our common stock.
If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious
side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates in the U.S., Japan, Europe or
other markets.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical tests
to demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans.
Preclinical
and clinical testing is expensive, difficult to design and implement and can take many years to complete. Special challenges can arise in conducting trials in diseases or
conditions with small populations, such as difficulties enrolling adequate numbers of patients. Our product development costs have and may continue to increase if we experience further delays in
testing or approvals. A failure of one or more of our preclinical studies or clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of,
preclinical testing and the clinical trial process that could delay or prevent our ability to obtain regulatory approval or commercialize our product candidates,
including:
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Our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to
conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising;
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Regulators, ethics committees or institutional review boards ("IRBs") may prevent us from commencing a clinical trial or conducting a clinical
trial at a prospective trial site;
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Enrollment in the clinical trials may take longer than expected or the clinical trials as designed may not allow for sufficient patient accrual
to complete enrollment of the trial;
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We may experience difficulties or delays due to the number of clinical sites involved in our clinical trials;
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We may decide to limit or abandon our commercial development programs;
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Conditions imposed on us by the FDA or any non-U.S. regulatory authority regarding the scope or design of our clinical trials may require us to
collect and submit information to regulatory authorities, ethics committees, IRBs or others for review and approval;
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The number of patients required for our clinical trials may be larger than we anticipate or participants may drop out of our clinical trials at
a higher rate than we anticipate;
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Our third-party contractors, contract research organizations ("CROs"), clinical investigators, clinical laboratories, product suppliers or
nebulizer supplier may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner;
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We may have to suspend or terminate one or more of our clinical trials if we, regulators, ethics committees or the IRBs determine that the
participants are being exposed to unacceptable health risks or for other reasons;
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We may not be able to claim that a product candidate provides an advantage over current standard of care or future competitive therapies in
development because our clinical studies may not have been designed to support such claims;
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Regulators, ethics committees or IRBs may require that we hold, suspend or terminate clinical research for various reasons, including potential
safety concerns or noncompliance with regulatory requirements;
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The cost of our clinical trials may be greater than we anticipate;
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The supply or quality of product used in clinical trials or other materials necessary to conduct our clinical trials may be insufficient or
inadequate or we may not be able to reach agreements on acceptable terms with prospective contract manufacturers or CROs;
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The effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have
other unexpected characteristics; and
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Our competitors may be able to bring products to market before we do.
If
we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete
our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we
may:
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Experience increased product development costs, as we have in the past;
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Be delayed in obtaining, or be unable to obtain, regulatory approval for one or more of our product candidates;
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Obtain approval for indications that are not as broad as intended or entirely different than those indications for which we sought approval or
labeling with black box or other warnings or contraindications;
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Have the product removed from the market after obtaining regulatory approval; or
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Face a shortened patent protection period during which we may have the exclusive right to commercialize our product candidates.
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We have limited experience in conducting and managing the preclinical development activities and clinical
trials necessary to obtain regulatory approvals, including approval by the FDA, MHLW, EMA and other regulatory agencies.
We have limited experience in conducting and managing the preclinical development activities and clinical trials necessary to obtain regulatory
approvals, including approval by the FDA, MHLW and EMA, which might prevent us from successfully designing, implementing, or completing the clinical trials required to support regulatory approval of
our product candidates. Since our merger with Transave, we have not completed a regulatory filing and review process for, obtained regulatory approval of or commercialized any of our product
candidates. The application processes for the FDA, MHLW, Pharmaceutical and Medical Devices Agency, EMA and other regulatory agencies are complex and difficult and vary by regulatory agency, and we
have limited experience in conducting and managing the application processes necessary to obtain regulatory approvals in these various jurisdictions and might not be able to demonstrate that our
product candidates meet the appropriate standards for regulatory approval. If we are not successful in conducting and managing our preclinical development activities or clinical trials or obtaining
regulatory approvals, we might not be able to commercialize ALIS or other product candidates, or might be significantly delayed in doing so, which may materially adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
There is little or no precedent for clinical development and regulatory expectations for agents to treat NTM
lung disease; as a result, we may encounter challenges developing clinical endpoints that will ultimately be satisfactory to regulators, which could cause our product candidates not to be approved by
regulators, delay commercialization of our product candidates or subject us to the risk of having any approval withdrawn.
Based on the top-line six-month data from the CONVERT study, we expect to submit an NDA under Subpart H to request accelerated approval
for ALIS. The FDA may base accelerated approval for drugs intended to treat serious or life-threatening illnesses that provide meaningful therapeutic benefit to patients over existing treatments on
whether the drug has an effect on a surrogate or an intermediate clinical endpoint (other than survival or irreversible morbidity). We are using a surrogate endpoint in our CONVERT study and, while we
have discussed our protocol for potential accelerated approval under Subpart H with the FDA, the FDA has not indicated its agreement or disagreement with the protocol. In addition, the FDA has
indicated that the results of the six-minute walk test, a secondary endpoint in the CONVERT study, will be important in assessing the results of culture conversion as a surrogate endpoint in the
CONVERT study. Developing clinical endpoints that are unsatisfactory to regulators could delay clinical trials and the FDA approval process, which could materially adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
Additionally,
if ALIS or any of our other product candidates is approved based on a surrogate or an intermediate clinical endpoint under the accelerated approval regulations, the
approval will be subject to the requirement that we study the product candidate further to verify and describe its clinical benefit, where there is uncertainty as to the relation of the surrogate or
intermediate clinical endpoint to clinical benefit or of the observed clinical benefit to the ultimate outcome. Thus, even if we are successful in obtaining accelerated approval in the U.S. or under
comparable pathways in other jurisdictions, we may face requirements and limitations that will adversely affect our prospects. For example, we may be approved only for a very limited indication, we
may not successfully complete required post-approval trials, or such trials may not confirm the clinical benefit of our drug, and approval of the drug may be withdrawn.
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For ALIS to be successfully developed and commercialized in a given market, in addition to regulatory
approvals required for ALIS, the eFlow Nebulizer System must satisfy certain regulatory requirements and its use as a delivery system for ALIS must be approved or cleared by regulators.
ALIS is administered using the eFlow Nebulizer System. As such, the eFlow Nebulizer System must receive regulatory approval or clearance on its
own or in conjunction with ALIS as a combination product in order for us to develop and commercialize ALIS. Although the eFlow Nebulizer System is CE marked by PARI in the EU, outside the EU, it is
labeled as investigational for use in our clinical trials, including in the U.S., Japan, Canada and Australia. The eFlow Nebulizer System is not approved for commercial use in the U.S., Japan, Canada
or certain other markets in which we may seek to commercialize ALIS.
In
the U.S., we plan to seek approval of the eFlow Nebulizer System in conjunction with ALIS as a combination product through a single NDA submission, and the increased complexity of
the review process in this circumstance may delay approval. Additionally, while we continue to work closely with PARI to coordinate efforts regarding regulatory requirements, we will be responsible
for this NDA submission, and we, in consultation with PARI, may not be successful in meeting the regulatory requirements for the eFlow Nebulizer System, which would prevent or delay our ability to
bring ALIS to market or to market it successfully. Further, based on our discussions to date with the FDA, we will need to conduct a human factors study for the eFlow Nebulizer System prior to
submission of our NDA for ALIS. Preparations for this study are underway, but if the study is delayed or otherwise does not yield adequate data, it could prevent or delay submission of the NDA or
approval of ALIS.
We may not be able to enroll enough patients to complete our clinical trials or retain a sufficient number of
patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates.
The completion rate of our clinical studies is dependent on, among other factors, the patient enrollment rate. Patient enrollment is a function
of many factors, including:
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Investigator identification and recruitment;
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Regulatory approvals to initiate study sites;
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Patient population size;
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The nature of the protocol to be used in the trial;
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Patient proximity to clinical sites;
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Eligibility criteria for the study;
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The patients' willingness to participate in the study;
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Discontinuation rates; and
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Competition from other companies' potential clinical studies for the same patient population.
Delays
in patient enrollment for future clinical trials, such as those we encountered in enrolling the CONVERT study, could increase costs and delay ultimate commercialization and
sales, if any, of our products. Once enrolled, patients may elect to discontinue participation in a clinical trial at any time. If patients elect to discontinue participation in our clinical trials at
a higher rate than expected, we may be unable to generate the data required by regulators for approval of our product candidates.
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Even if we obtain regulatory approval for ALIS or any of our other product candidates, we will continue to
face extensive regulatory requirements and our products may face future development and regulatory difficulties.
Even if regulatory approval in the U.S. is obtained, the FDA may still impose significant restrictions on a product's indicated uses or
marketing, including risk evaluation and mitigation strategies ("REMS"), or may impose ongoing requirements on us, including with respect to:
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Labeling, such as black box or other warnings or contraindications;
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Post-market surveillance, post-market studies or post-market clinical trials;
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Packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of safety and other postmarket
information;
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Monitoring and reporting complaints, adverse events and instances of the failure of a product to meet specifications;
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Compliance with CGMPs;
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Changes to the approved product, product labeling or manufacturing process;
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Advertising and other promotional material; and
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Disclosure of clinical trial results on publicly available databases.
In
addition, the distribution, sale and marketing of our products are subject to a number of additional requirements, including:
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State wholesale drug distribution laws and the distribution of our product samples to physicians must comply with the requirements of the
Prescription Drug Marketing Act of 1987;
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Sales, marketing and scientific or educational grant programs must comply with federal and state laws; and
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Pricing and rebate programs must comply with the Medicaid rebate requirements, and if products are made available to authorized users of the
Federal Supply Schedule of the General Services Administration, additional laws and requirements apply.
All
of these activities also may be subject to federal and state consumer protection and unfair competition laws.
If
we fail to comply with applicable regulatory requirements, a regulatory agency may:
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Issue warning letters or untitled letters asserting that we are in violation of the law;
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Seek an injunction or impose civil or criminal penalties or monetary fines;
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Suspend or withdraw regulatory approval;
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Suspend or terminate any ongoing clinical trials;
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Refuse to approve pending applications or supplements to applications submitted by us;
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Suspend or impose restrictions on operations, including costly new manufacturing requirements;
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Seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall;
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Refuse to allow us to enter into supply contracts, including government contracts; and/or
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Impose civil monetary penalties or pursue civil or criminal prosecutions and fines against our company or responsible officers.
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Any
government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. The occurrence of any event or
penalty described above may inhibit our ability to commercialize our product candidates and generate revenues.
The commercial success of ALIS or any other product candidates that we may develop will depend upon many
factors, including the degree of market acceptance by physicians, patients, third-party payers and others in the medical community.
Even if we are able to successfully complete development of, obtain regulatory approval for, and bring to market our product candidates, they
may not gain market acceptance by physicians, patients, third-party payers and others in the medical community. If ALIS, or any other product candidate we bring to market, does not achieve an adequate
level of acceptance, we may not generate significant product revenue and we may not become profitable. The degree of market
acceptance of ALIS and any other product candidates, if approved for commercial sale, will depend on a number of factors, including:
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The prevalence and severity of any side effects, including any limitations or warnings contained in a product's approved labeling;
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The efficacy and potential advantages over alternative treatments;
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The pricing of our products;
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Relative convenience and ease of administration;
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The willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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The strength of marketing and distribution support and timing of market introduction of competitive products;
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Publicity concerning our products or competing products and treatments, including competing products becoming subject to generic pricing; and
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Sufficient third-party insurance coverage and reimbursement.
Even
if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it is
launched. For example, if a clinical trial is not designed to demonstrate advantages over alternative treatments, we may be prohibited from promoting our product candidates on any such advantages. Our
efforts to educate the medical community and third-party payers on the benefits of our product candidates may require significant resources and may never be successful. Such efforts to educate the
marketplace may require more resources than are required to commercialize more established technologies marketed by our competitors.
We currently have a very small marketing and sales organization, and we have limited experience as a company
in marketing drug products. If we are unable to establish our own marketing and sales capabilities, or are unable to enter into agreements with third parties, to market and sell our products after
they are approved, our ability to generate product revenues will be adversely affected.
We have a small commercial organization for the marketing, market access, sales and distribution of our products. In order to commercialize
ALIS or any other product candidates, we must develop these capabilities on our own or make arrangements with third parties for the marketing, sales and distribution of our products. The establishment
and development of our own sales force will be expensive and time consuming and could delay any product launch, and we may be unable to successfully develop this capability. As a result, we may seek
one or more
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partners
to handle some or all of the sales and marketing of ALIS in certain markets. However, we may not be able to enter into arrangements with third parties to sell ALIS on favorable terms or at
all. In the event we are unable to develop our own marketing, market access, and sales force or collaborate with a third-party marketing, market access, and sales organization, we may not be able to
successfully commercialize ALIS or any other product candidates that we develop, which would adversely affect our ability to generate product revenues. Further, whether we commercialize products on
our own or rely on a third party to do so, our ability to generate revenue will be dependent on the effectiveness of the sales force.
If estimates of the size of the potential markets for our product candidates, including ALIS, are overstated
or regulators limit the proposed treatment population for our product candidates, our ability to commercialize such product candidates successfully or achieve sufficient revenue to support our
business could be materially adversely affected.
We have relied on currently available information from external sources, including market research funded by us and third parties, and internal
analyses and calculations to estimate the potential market opportunities for NTM lung disease in 2018 in the United States, Japan and EU5. The externally sourced information used to develop these
estimates has been obtained from sources we believe to be reliable, but we have not verified the data from such sources, and their accuracy and completeness cannot be assured. Similarly, our internal
analyses and calculations are based upon management's understanding and assessment of numerous inputs and market conditions, including, but not limited to, the projected increase in prevalence of NTM
lung disease, Medicare patient population growth and ongoing population shifts to geographies with increased rates of NTM lung disease. These understandings and assessments necessarily require
assumptions subject to significant judgment and may prove to be inaccurate. As a result, our estimates of the size of these potential markets for ALIS could prove to be overstated, perhaps materially.
We may develop estimates with respect to market opportunities for other product candidates in the future, and such estimates would be subject to similar risks. In addition, a potential market
opportunity could be reduced if a regulator limits the proposed treatment population for one of our product candidates. In either circumstance, even if we obtain regulatory approval for a product
candidate, we may be unable to commercialize it on a scale sufficient to generate material revenues, which could have a material adverse effect on our business, financial condition, results of
operations and prospects and the value of our common stock.
Risks Related to Our Reliance on Third Parties
We rely on third parties including collaborators, CROs, clinical and analytical laboratories, contract
manufacturing organizations ("CMOs") and other providers for many services that are critical to our business. If we are unable to form and sustain these relationships, or if any third-party
arrangements that we may enter into are unsuccessful, including due to non-compliance by such third parties with our agreements or applicable law, our ability to develop and commercialize our products
may be materially adversely affected.
We currently rely, and expect that we will in the future continue to rely, on third parties for significant research, analytical services,
preclinical development, clinical development
and manufacturing of our product candidates. For example, almost all of our clinical trial work is done by CROs, such as SynteractHCR, Inc., our CRO for both the 212 and 312 studies, and
clinical laboratories. Reliance on these third parties poses a number of risks, including the following:
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Significant competition in seeking appropriate partners;
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The complex and time-consuming nature of negotiation, documentation and implementation of agreements with third parties in the pharmaceutical
industry;
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Our potential inability to establish and implement collaborations or other alternative arrangements that we might pursue on favorable terms;
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Our potential inability to control whether third parties devote sufficient resources to our programs or products, including with respect to
meeting contractual deadlines;
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Our potential inability to control the regulatory and contractual compliance of third parties, including their processes and procedures,
systems utilized to collect and analyze data, and equipment used to test drug product and/or clinical supplies;
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Disagreements with third parties, including CROs, that result in a dispute over and loss of intellectual property rights, delay or termination
of research, development, or commercialization of product candidates or litigation or arbitration;
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Contracts with our collaborators that fail to provide sufficient protection of our intellectual property; and
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Difficulty enforcing the contracts if one of these third parties fails to perform.
We
also rely on third parties to select and enter into agreements with clinical investigators to conduct clinical trials to support approval of our products, and the failure of these
third parties to appropriately carry out such evaluation and selection can adversely affect the quality of the data from these studies and, potentially, the approval of our products. In particular, as
part of future drug approval submissions to the FDA, we must disclose certain financial interests of investigators who participated in any of the clinical studies being submitted in support of
approval, or must certify to the absence of such financial interests. The FDA evaluates the information contained in such disclosures to determine whether disclosed interests may have an impact on the
reliability of a study. If the FDA determines that financial interests of any clinical investigator raise serious questions of data integrity, the FDA can institute a data audit, request that we
submit further data analyses, conduct additional independent studies to confirm the results of the questioned study, or refuse to use the data from the questioned study as a basis for approval. A
finding by the FDA that a financial relationship of an investigator raises serious questions of data integrity, could delay or otherwise adversely affect approval of our products.
Such
risks could materially harm our business, financial condition, results of operations and prospects and the value of our common stock.
We may not have, or may be unable to obtain, sufficient quantities of our product candidates to meet our
required supply for clinical studies or commercialization requirements, which would materially harm our business.
We do not have any in-house manufacturing capability other than for development and characterization and depend completely on a small number of
third-party manufacturers and suppliers for the manufacture of our product candidates on a clinical or commercial scale. For instance, we are and expect to remain dependent upon Therapure
Biopharma Inc. ("Therapure"), Ajinomoto Althea, Inc. ("Althea") and other suppliers being able to provide an adequate supply of ALIS both for our clinical trials and for commercial sale
in the event ALIS receives regulatory approvals. Althea currently manufactures ALIS at a relatively small scale. In order to meet potential commercial demand, if ALIS is approved, we have constructed
a manufacturing operation at Therapure in Canada that operates at a larger scale and intend to invest in additional production capacity for ALIS. We may not be able to secure such additional
production capacity for ALIS, which would increase the risks associated with either Therapure or Althea being unable to provide us with an adequate supply of ALIS.
We
are also dependent upon PARI being able to provide an adequate supply of nebulizers both for our clinical trials and for commercial sale in the event ALIS receives regulatory
approval, as
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PARI
is the sole manufacturer of the eFlow Nebulizer System. We have no alternative supplier for the nebulizer, and we do not intend to seek an alternative or secondary supplier. Significant effort
and time were expended in the optimization of the nebulizer for use with ALIS. In the event PARI cannot provide us with sufficient quantities of the nebulizer, replication of the optimized device by
another party may require considerable time and additional regulatory approval. In the case of certain defined supply failures, we will have the right under the our commercialization agreement with
PARI to make the nebulizer and have it made by certain third parties, but not those deemed under the commercialization agreement to compete with PARI.
We
do not have long-term commercial agreements with all of our suppliers and if any of our suppliers are unable or unwilling to perform for any reason, we may not be able to locate
suppliers or enter into favorable agreements with them. In such circumstances, an inadequate supply of ALIS or the nebulizer could delay, impair or prevent clinical trials, the development and
commercialization of ALIS and adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
Risks Related to Our Financial Condition and Future Capital Requirements
We have a history of operating losses, and we currently have no material source of revenue. We expect to
incur operating losses for the foreseeable future and may never achieve or maintain profitability.
We have incurred losses each previous year of our operation, except in 2009, when we sold our manufacturing facility and certain other assets
to Merck, and we did not generate material revenue during the six months ended June 30, 2017 or the years ended December 31, 2016, 2015 or 2014. We expect to continue incurring operating
losses for the foreseeable future. The process of developing and commercializing our products requires significant pre-clinical and clinical testing as well as regulatory approvals for
commercialization and marketing before we are allowed to begin product sales. In addition, commercialization of our product candidates would require us to significantly expand our sales and marketing
organization and establish contractual relationships to enable product manufacturing and other related activities. We expect that our activities, together with our general and administrative expenses,
will continue to result in substantial operating losses for the foreseeable future. As of June 30, 2017, our accumulated deficit was $847.3 million. For the six months ended
June 30, 2017, our consolidated net loss was $82.1 million, and we incurred a consolidated net loss of $176.3 million for the year ended December 31, 2016. To achieve and
maintain profitability, we need to generate significant revenues from future product sales. The process of developing and commercializing our products will require significant expenditures for
pre-clinical and clinical testing, regulatory approvals for commercialization and marketing, development of an internal or external sales and marketing organization and other related activities.
Because of the numerous risks and uncertainties associated with drug development and commercialization, we are unable to predict the extent of any future losses, and we may never generate significant
future revenues or achieve and sustain profitability.
We will need additional funds in the future to continue our operations, but we face uncertainties with
respect to our ability to access capital.
Our operations have consumed substantial amounts of cash since our inception. We expect to continue to incur substantial research and
development expenses, and we expect to expend substantial financial resources to complete development of, seek regulatory approval for, and prepare for commercialization of ALIS. In addition, if we
obtain regulatory approval for ALIS or any of our other product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and
distribution. We will need
additional capital to fund these expenses. We also will require additional future capital in order to continue our other research
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and
development activities, including due to changes in our product development plans or misjudgment of expected costs, fund corporate development, maintain our intellectual property portfolio or
resolve litigation. As of June 30, 2017, we had $91.1 million of cash and cash equivalents on hand but no committed sources of capital. We do not know whether additional financing will
be available when needed, or, if available, that the terms will be favorable. If adequate funds are not available to us when needed, we will be forced to delay, restrict or eliminate all or a portion
of our development programs or commercialization efforts.
Our loan agreement with Hercules Capital, Inc. ("Hercules") contains covenants and other provisions
that impose restrictions on our operations, which may adversely affect our ability to optimally operate our business or to maximize shareholder value.
Our loan agreement with Hercules, under which we had outstanding indebtedness of $55.2 million as of June 30, 2017, contains
various restrictive covenants, including restrictions on our ability to incur additional debt, transfer or place a lien or security interest on our assets, including our intellectual property, merge
with or acquire other companies, redeem or repurchase any shares of our capital stock or pay cash dividends to our shareholders. The loan agreement also contains certain other covenants (including
limitations on other indebtedness, liens, acquisitions, investments and dividends). Upon the occurrence of an event of default, a default interest rate of an additional 5% may be applied to the
outstanding loan balances, and Hercules may terminate its lending commitment, declare all outstanding obligations immediately due and payable, and take such other actions as set forth in the loan
agreement. In addition, pursuant to the loan agreement, Hercules has the right to participate, in an amount of up to $2.0 million, in a subsequent private financing that involves the issuance
of our equity securities. The interest-only period under the loan agreement extends through November 1, 2018, and can be extended up to six months under certain conditions. The maturity date of
the loan facility is October 1, 2020.
Our
borrowings under the loan agreement are secured by a lien on our assets, excluding our intellectual property, and in the event of a default on the loan, Hercules may have the right
to seize the assets securing our obligations under the loan agreement. The terms and restrictions provided in the loan agreement may inhibit our ability to conduct our business and to maximize
shareholder value. Future debt securities or other financing arrangements could contain negative covenants similar to, or even more restrictive than, the Hercules loan agreement.
In-process research and development ("IPRD") comprised approximately 35% of our total assets as of
June 30, 2017. A reduction in the value of our IPRD could have a material adverse effect on our results of operations, financial condition and the value of our common stock.
As a result of the merger with Transave in 2010, we recorded an intangible IPRD asset of $77.9 million and goodwill of
$6.3 million on our balance sheet. As a result of the clinical hold on ALIS announced in late 2011, we recorded a charge of $26.0 million in the fourth quarter of 2011 that reduced the
value of IPRD to $58.2 million and reduced goodwill to zero. Potential future activities or results could result in additional writedowns of IPRD, which could materially adversely affect our
results of operations, financial condition and the value of our common stock.
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We may be unable to use our net operating losses and other tax assets.
We have substantial tax loss carry forwards for U.S. federal income tax and state income tax purposes, and beginning in 2015, we had tax loss
carry forwards in Ireland as well. In general, our net operating losses and tax credits have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these
tax benefits. In particular, our ability to fully use certain U.S. tax loss carry forwards and general business tax credit carry forwards recorded prior to December 2010 to offset future income or tax
liability is limited under section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). Changes in the ownership of our stock, including those resulting from the issuance of
shares of our common stock in this or future offerings or upon exercise of outstanding options, may limit or eliminate our ability to use certain net operating losses and tax credit carry forwards in
the future.
Any acquisitions we make, or collaborative relationships we enter into, may require a significant amount of
our available cash and may not be clinically or commercially successful.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and
personnel, but we cannot assure you that we will identify suitable products or enter into such acquisitions on acceptable terms.
Acquisitions
involve a number of operational risks, including:
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Failure to achieve expected synergies;
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Difficulty and expense of assimilating the operations, technology and personnel of the acquired business;
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Our inability to retain the management, key personnel and other employees of the acquired business;
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Our inability to maintain the acquired company's relationship with key third parties, such as alliance partners;
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Exposure to legal claims for activities of the acquired business prior to the acquisition;
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The diversion of our management's attention from our core business; and
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The potential impairment of goodwill and write-off of IPRD costs, adversely affecting our reported results of operations and financial
condition.
We
also may enter into collaborative relationships that would involve our collaborators conducting proprietary development programs. Any conflict with our collaborators could limit our
ability to obtain future collaboration agreements and negatively influence our relationship with existing collaborators. Disagreements with collaborators may also develop over the rights to our
intellectual property.
If
we make one or more significant acquisitions or enter into a significant collaboration in which the consideration includes cash, we may be required to use a substantial portion of
our available cash and/or need to raise additional capital. For instance, in September and October of 2016, we borrowed $30.0 million under our loan agreement with Hercules to fund the payment
due under the license agreement with AstraZeneca, and this investment as with any acquisition or collaboration may not be successful.
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Risks Related to Regulatory Matters
The manufacturing facilities of our third-party manufacturers are subject to significant government
regulations and approvals, which are often costly and could result in adverse consequences to our business if we and our manufacturing partners fail to comply with the regulations or maintain the
approvals.
Manufacturers of our product candidates are subject to CGMP and similar standards, and while we have policies and procedures in place to select
manufacturers that adhere, and monitor their adherence to, such standards, they may nonetheless fail to do so. If one of them fails to obtain or maintain compliance or experiences problems in the
scale-up of commercial production, the production of our product candidates could be interrupted, resulting in delays, additional costs or restrictions on the marketing or sale of our products. These
manufacturers and their facilities will be subject to pre-approval CGMP inspection by the FDA and other regulatory authorities, and the findings of the CGMP inspection could result in a failure to
obtain, or a delay in obtaining, regulatory approval. In addition, these manufacturers and their facilities will be subject to continual review and periodic inspections by the FDA and other regulatory
authorities following regulatory approval, if any, of our product candidates. For instance, to monitor compliance with applicable regulations, the FDA routinely conducts inspections of facilities and
may identify potential deficiencies. The FDA issues what are referred to as "FDA Form 483s" that set forth observations and concerns that are identified during its inspections. Failure to
satisfactorily address the concerns or potential deficiencies identified in a Form 483 could result in the issuance of a warning letter, which is a notice of the issues that the FDA believes to
be significant regulatory violations requiring prompt corrective actions. Failure to respond adequately to a warning letter, or to otherwise fail to comply with applicable regulatory requirements
could result in enforcement, remedial and/or punitive actions by the FDA or other regulatory authorities.
Even if we obtain regulatory approval for ALIS or any of our other product candidates, adverse effects
discovered after approval could limit the commercial profile of any approved product.
If we obtain regulatory approval for ALIS or any other product candidate that we develop, such products will be used by a larger number of
patients and for longer periods of time than they were used in clinical trials. For these or other reasons, we or others may later discover that our products have adverse event profiles that limit
their usefulness or require their withdrawal. This discovery could have a number of potentially significant negative consequences, including:
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Regulatory authorities may withdraw their approval or clearance of the product and may require recall of product in distribution;
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Regulatory authorities may require the addition of labeling statements, such as black box or other warnings or contraindications, or the
issuance of "Dear Doctor Letters" or similar communications to healthcare professionals;
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Regulatory authorities may impose additional restrictions on marketing and distribution of the products, or other risk management measures,
such as a REMS;
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We may be required to change the way the product is administered, conduct additional clinical studies or restrict the distribution of the
product;
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We could be sued and held liable for harm caused to subjects; and
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We could be subject to negative publicity, including communications issued by regulatory authorities.
Any
of these events could prevent us from maintaining market acceptance of the affected product, cause substantial reduction in sales or substantially increase the costs of
commercializing
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our
product candidates, cause significant financial losses or result in significant reputational damage.
If we are unable to obtain adequate reimbursement from governments or third-party payers for ALIS or any
other products that we may develop or if we are unable to obtain acceptable prices for those products, our prospects for generating revenue and achieving profitability may be materially adversely
affected.
Our prospects for generating revenue and achieving profitability depend heavily upon the availability of adequate reimbursement for the use of
our approved product candidates from governmental and other third-party payers, both in the U.S. and in other markets. For instance, we expect a substantial majority of potential future ALIS revenues
would come from Medicare reimbursement. Reimbursement by a third-party payer may depend upon a number of factors, including the third-party payer's determination that use of a product
is:
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A covered benefit under its health plan;
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Safe, effective and medically necessary;
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Appropriate for the specific patient;
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Cost-effective; and
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Neither experimental nor investigational.
Obtaining
reimbursement approval for a product from each government or other third-party payer is a time consuming and costly process that could require us to provide supporting
scientific, clinical and cost effectiveness data for the use of our products to each payer. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement or we might
need to
conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such payers' satisfaction. Such studies might require us to commit a significant amount of
management time and financial and other resources. Even when a payer determines that a product is eligible for reimbursement, the payer may impose coverage limitations that preclude payment for some
uses that are approved by the FDA or non-U.S. regulatory authorities. In addition, there is a risk that full reimbursement may not be available for high priced products. Moreover, eligibility for
coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, also
may not be sufficient to cover our costs and may not be made permanent. Subsequent approvals of competitive products could result in a detrimental change to the reimbursement of our products.
There
is a significant focus in the U.S. healthcare industry and elsewhere on cost containment and value. We expect changes in the Medicare program and state Medicaid programs, as well
as managed care organizations and other third-party payers, to continue to put pressure on pharmaceutical product pricing. For instance, the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 ("MMA") expanded Medicare outpatient prescription drug coverage for the elderly through Part D prescription drug plans sponsored by private entities and authorized such plans to use
formularies where they can limit the number of drugs that will be covered in any therapeutic class. The plans generally negotiate significant price concessions as a condition of formulary placement.
The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs, which is generally believed to have resulted in lower Medicare reimbursement for
physician-administered drugs. These cost reduction initiatives and other provisions of this legislation provide additional pressure to contain and reduce drug prices and could decrease the coverage
and price that we receive for any approved products and could seriously harm our business. Although the MMA applies only to drug benefits for Medicare
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beneficiaries,
private payers often follow Medicare coverage policy and payment limitations when setting their own reimbursement rates, and any reimbursement reduction resulting from the MMA may
result in a similar reduction in payments from private payers. Additionally, the Patient Protection and Affordable Care Act ("ACA") revised the definition of "average manufacturer price" for reporting
purposes, which could increase the amount of Medicaid drug rebates to states, and has imposed a significant annual fee on companies that manufacture or import branded prescription drug products. We
believe it is likely that the ACA, or any legislation enacted to replace it, will continue the pressure on pharmaceutical pricing, especially under the Medicare program, and also may increase our
regulatory burdens and operating costs. If one or more of our product candidates reaches commercialization, such changes may have a significant impact on our ability to set a price we believe is fair
for our products and may adversely affect our ability to generate revenue and achieve or maintain profitability. We expect further federal and state proposals and health care reforms to continue to be
proposed by legislators and/or the U.S. President, which could limit the prices that can be charged for the products we develop and may limit our commercial opportunity.
Moreover,
in markets outside the U.S., including Japan, Canada and the countries in the EU, pricing of pharmaceutical products is subject to governmental control. Evaluation criteria
used by many EU government agencies for the purposes of pricing and reimbursement typically focus on a product's degree of innovation and its ability to meet a clinical need unfulfilled by currently
available therapies. The ACA created a similar entity, the Patient-Centered Outcomes Research Institute ("PCORI") designed to review the effectiveness of treatments and medications in federally-funded
health care programs. The PCORI began its first research initiatives recently, and an adverse result may result in a treatment or product being removed from Medicare or Medicare coverage. The
decisions of such governmental agencies could affect our ability to sell our products profitably.
Government health care reform could increase our costs, and could materially adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
Our industry is highly regulated and changes in or revisions to laws and regulations that make gaining regulatory approval, reimbursement and
pricing more difficult or subject to different criteria and standards may adversely impact our business, operations or financial results. For example, under the ACA, drug manufacturers are required to
report information on payments or transfers of value to U.S. physicians and teaching hospitals as well as investment interests held by physicians and their immediate family members. Failure to submit
required information may result in civil monetary penalties. The reported data is posted in searchable form on a public website. In addition, some states, as well as other countries, including France,
require the disclosure of certain payments to health care professionals. In the coming years, we expect additional and potentially substantial, changes to governmental programs that could
significantly impact the success of our product candidates.
The
Administration and the majority party in both Houses of Congress have indicated their ongoing desire to repeal the ACA. It is unclear whether, when and how that repeal may be
effectuated and what the effect on the healthcare sector will be. The U.S. President has indicated an interest in having the federal government negotiate drug prices with pharmaceutical manufacturers.
Changes to the ACA, to the Medicare or Medicaid programs, or to the ability of the federal government to negotiate drug prices, or other federal legislation regarding healthcare access, financing or
legislation in individual states, could affect our business, financial condition, results of operations and prospects and the value of our common stock.
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We will need approval from the FDA and other regulatory authorities in jurisdictions outside the U.S. for our
proposed trade names. Any failure or delay associated with such approvals may delay the commercialization of our products.
Any trade name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal
trademark registration from the U.S. Patent and Trademark Office ("PTO"). The FDA typically conducts a rigorous review of proposed trade names, including an evaluation of potential for confusion with
other trade names and medication error. The FDA also may object to a trade name if it believes the name is inappropriately promotional. Even after the FDA approves a trade name, the FDA may request
that we adopt an alternative name for the product if adverse event reports indicate a potential for confusion with other trade names and medication error. If we are required to adopt an alternative
name, the commercialization of ALIS could be delayed or interrupted, which would limit our ability to commercialize ALIS and generate revenues.
If we are found in violation of federal or state "fraud and abuse" laws, we may be required to pay a penalty
or may be suspended from participation in federal or state health care programs, which may adversely affect our business, financial condition, results of operations and prospects and the value of our
common stock.
In the U.S., we are subject to various federal and state health care "fraud and abuse" laws, including anti-kickback laws, false claims laws
and other laws intended to reduce fraud and abuse in federal and state health care programs. Although we seek to structure our business arrangements in compliance with all applicable requirements,
these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged
under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines or exclusion or suspension from federal and state health care programs such
as Medicare and Medicaid and debarment from contracting with the U.S. government, and our business, financial condition, results of operations and prospects and the value of our common stock may be
adversely affected. Our reputation could also suffer. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under
the false claims laws of several states.
Several
states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. Health record privacy laws may limit
access to information identifying those individuals who may be prospective users or prohibit contact with any persons enrolled in Medicare or Medicaid. There are ambiguities as to what is required to
comply with these state requirements, and we could be subject to penalties if a state determines that we have failed to comply with an applicable state law requirement.
Risks Related to Our Intellectual Property
If we are unable to protect our intellectual property rights adequately, the value of our product candidates
could be diminished.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal, technical,
scientific and factual questions, and our success depends in large part on our ability to protect our proprietary technology and to obtain patent protection for our products, prevent third parties
from infringing on our patents, both domestically and internationally. We have sought to protect our proprietary position by filing patent applications in the U.S. and abroad related to our novel
technologies and products that are important to our business. This process is expensive and time-consuming, and we may not be able to file and
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prosecute
all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies
or from developing competing products and technologies.
Even
if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing
with us or otherwise provide us with any competitive advantage. Any conclusions we may reach regarding non-infringement, inapplicability or invalidity of a third party's intellectual property
vis-à-vis our proprietary rights, or those of a licensor, are based in significant part on a review of publicly available databases and other information. There may be information not
available to us or otherwise not reviewed by us that could render these conclusions inaccurate. Our competitors may also be able to circumvent our owned or licensed patents by developing similar or
alternative technologies or products in a non-infringing manner.
Additionally,
patents issued to us or our licensors may be challenged, narrowed, invalidated, held to be unenforceable or circumvented through litigation, which could limit our ability
to stop competitors from marketing similar products or reduce the term of patent protection we may have for our products. U.S. patents and patent applications may also be subject to interference or
derivation proceedings, and U.S. patents may be subject to re-examination proceedings, reissue, post-grant review and/or
inter partes
review in the PTO.
Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent application
or loss or reduction in the scope of one or more of the claims of the patent or patent application. See
Intellectual Property ARIKAYCE Patents and Trade
Secrets
in Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016 (the "2016 Annual Report") for information on our
European patent that was previously opposed, the decision of which is now under appeal by Generics (UK) Ltd, and our European patent that is currently being opposed by Generics (UK) Ltd.
Changes
in either patent laws or in interpretations of patent laws in the U.S. and other countries may also diminish the value of our intellectual property or narrow the scope of our
patent protection, including making it easier for competitors to challenge our patents. For example, the America Invents Act included a number of changes to established practices, including the
transition to a first-inventor-to-file system and new procedures for challenging patents and implementation of different methods for invalidating patents.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the
value of our product candidates could be significantly diminished.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, advisors, collaborators, and other third parties and
partners to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information or may not provide an adequate remedy in
the event of unauthorized disclosure of confidential information. In addition, third parties may independently develop or discover our trade secrets and proprietary information. Regulators also may
disclose information we consider to be proprietary to third parties under certain circumstances, including in response to third-party requests for such disclosure under the Freedom of Information Act
or comparable laws. Additionally, the FDA, as part of its Transparency Initiative continues to consider whether to make additional information publicly available on a routine basis, including
information that we may consider to be trade secrets or other
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proprietary
information, and it is not clear at the present time whether and how the FDA's disclosure policies may change in the future.
We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the U.S. Many companies have
encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do
not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents
or in-licensed patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner may be required
to grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries,
patents may provide limited or no benefit.
Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Our efforts
to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the U.S. and foreign countries may affect our ability
to obtain adequate protection for our technology and to enforce intellectual property rights.
We may infringe the intellectual property rights of others, which may prevent or delay our product
development efforts, prevent us from commercializing our products or increase the costs of commercializing our products.
Third parties may claim that we have infringed upon or misappropriated their proprietary rights. Any existing third-party patents, or patents
that may later issue to third parties, could negatively affect our commercialization of ALIS, INS1007, INS1009 or any other product. For instance, PAH is a competitive indication with established
products, including other formulations of treprostinil. Our supply of the active pharmaceutical ingredient for INS1009 is dependent upon a single supplier. The supplier owns patents on its
manufacturing process, and we have filed patent applications for INS1009; however, a competitor in the PAH indication may claim that we or our supplier have infringed upon or misappropriated its
proprietary rights. Moreover, in the event that
we pursue approval of INS1009, or any other product candidate, via the 505(b)(2) regulatory pathway, we will be required to file a certification against any unexpired patents listed in the
Orange Book for the third party drug we rely upon as part of our regulatory submission. This certification process may lead to litigation and could delay also launch of a product candidate.
In
the event of a successful claim against us for infringement or misappropriation of a third party's proprietary rights, we may be required to take actions including but not limited to
the following:
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Pay damages, including up to treble damages, royalties, and the other party's attorneys' fees, which may be substantial;
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Cease the development, manufacture, marketing and sale of products or use of processes that infringe the proprietary rights of others;
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Expend significant resources to redesign our products or our processes so that they do not infringe the proprietary rights of others, which may
not be possible;
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Redesign our products or processes to avoid third-party proprietary rights, which means we may suffer significant regulatory delays associated
with conducting additional clinical trials or other steps to obtain regulatory approval; and/or
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Obtain one or more licenses arising out of a settlement of litigation or otherwise from third parties which license(s) may not be available to
us on acceptable terms or at all.
Such
litigation, and any resulting resolution, could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common
stock.
Any lawsuits or other proceedings relating to infringement or enforcement by us or third parties of
intellectual property rights or challenges to the scope and validity of such rights may be costly and time consuming.
We may have to undertake costly litigation or engage in other proceedings, such as interference or inter partes review, to enforce any patents
issued or licensed to us, to confirm the scope and validity of our or a licensor's proprietary rights or to defend against allegations that we have infringed a third party's intellectual property
rights. Such proceedings are likely to be time consuming and may divert management attention from operation of our business.
Certain of our existing license agreements include, and our future license agreements also may include,
restrictions on our ability to freely develop or commercialize the product candidates that are subject to those agreements. If we fail to comply with our obligations under these agreements, or if
these license agreements are terminated for other reasons, we could lose license rights that are important to our business.
We are a party to licensing agreements with PARI and AstraZeneca, which we view as material to our business. For additional information
regarding the terms of these agreements, see
Business License and Other Agreements
in Item 1 of Part I of our 2016
Annual Report. Under our license agreement with AstraZeneca, AstraZeneca retains a right of first negotiation pursuant to which it may exclusively negotiate with us before we can negotiate with a
third party regarding any transaction to develop or commercialize INS1007, subject to certain exceptions. While this right of first negotiation is not triggered by a change of control, it may impede
or delay our ability to consummate certain other transactions involving INS1007.
Additionally,
if we fail to comply with our obligations under the agreements with PARI and AstraZeneca, our counterparty may have the right to take action against us, up to and
including termination of the relevant license. For instance, under our licensing agreement with PARI, with respect to NTM, CF and bronchiectasis, we have specific obligations to use commercially
reasonable efforts to achieve certain developmental and regulatory milestones by set deadlines.
Additionally, for NTM, we are obligated to use commercially reasonable efforts to achieve certain commercial milestones in the U.S. and Europe. The consequences of our failing to use commercially
reasonable efforts to achieve certain commercial milestones are context-specific, but include ending PARI's non-compete obligation, making the license non-exclusive and terminating the license, in
each case with respect to the applicable indication. Similarly, under our license agreement with AstraZeneca, AstraZeneca may terminate our license to INS1007 if we fail to use commercially reasonable
efforts to develop and commercialize a product based on INS1007, or we are subject to a bankruptcy or insolvency. Reduction or elimination of our licensed rights may result in our having to negotiate
new or reinstated licenses with less favorable terms and may materially harm our business.
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Risks Related to Our Industry
We operate in a highly competitive and changing environment, and if we are unable to adapt to our
environment, we may be unable to compete successfully.
Biotechnology and related pharmaceutical technology have undergone and are likely to continue to experience rapid and significant change. We
expect that the technologies associated with biotechnology research and development will continue to develop rapidly. Our future success will depend in large part on our ability to maintain a
competitive position with respect to these technologies and to obtain and maintain protection for our intellectual property. Any compounds, products or processes that we develop may become obsolete
before we recover any expenses incurred in connection with their development. In each of our potential product areas, we face substantial competition from pharmaceutical, biotechnology and other
companies, universities and research institutions. Relative to us, most of these entities have substantially greater capital resources, research and development staffs, facilities and experience in
conducting clinical studies and obtaining regulatory approvals, as well as in manufacturing and marketing pharmaceutical products. Many of our competitors may achieve product commercialization or
obtain patent protection earlier than us. Furthermore, we believe that our competitors have used, and may continue to use, litigation to gain a competitive advantage. Our competitors may also use
different technologies or approaches to the development of products similar to the products we are seeking to develop.
We
expect that competing successfully will depend, among other things, on product efficacy, safety, reliability, availability, timing and scope of regulatory approval and price.
Specifically, we expect crucial factors will include the relative speed with which we can develop products, complete the clinical testing and regulatory approval processes and supply commercial
quantities of the product to the market. We expect competition to increase as technological advances are made and commercial applications broaden. There are potential competitive products, both
approved and in development, which include oral, systemic, or inhaled antibiotic products to treat chronic respiratory infections. For instance, certain entities have expressed interest in studying
their products for NTM lung disease and are seeking to advance studies in NTM lung disease caused by mycobacterial species other than MAC; however, we are not aware that any such entities are
currently conducting clinical trials for the treatment of refractory NTM lung disease caused by MAC or of any approved inhaled therapies specifically indicated for NTM lung disease in North America,
Japan or Europe. If any of our competitors develops a product that is more effective, safe, tolerable or, convenient or less expensive than ALIS or our other product candidates, it would likely
materially adversely affect our ability to generate revenues. We also may face lower priced generic competitors if third-party payers encourage use of generic or lower-priced versions of our product
or if competing products are imported into the U.S. or other countries where we may sell ALIS.
In
addition, there are other amikacin products that have been approved by the FDA, MHLW and other regulatory agencies for use in other indications, and physicians may elect to prescribe
those products rather than ALIS to treat the indications for which ALIS may receive approval, which is commonly referred to as off-label use. Although regulations prohibit a drug company from
promoting off-label use of its product, the FDA and other regulatory agencies do not regulate the practice of medicine and cannot direct physicians as to what product to prescribe to their patients.
As a result, we would have limited ability to prevent any off-label use of a competitor's product to treat diseases for which we have received FDA or other regulatory agency approval, even if such use
violates our patents or orphan drug exclusivity for the use of amikacin to treat such diseases. If we are unable to compete successfully, it will materially adversely affect our business, financial
condition, results of operations and prospects and the value of our common stock.
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If another party obtains orphan drug exclusivity for a product that is essentially the same as a product we
are developing for a particular indication, we may be precluded or delayed from commercializing the product in that indication.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition. The company that
obtains the first regulatory approval from the FDA for a designated orphan drug for a rare disease receives marketing exclusivity for use of that drug for the designated condition for a period of
seven years. Similar laws exist in the EU with a term of ten years. See
Business Government Regulation Orphan
Drugs
in Item 1 of Part I of our 2016 Annual Report for additional information. If a competitor obtains approval of the same drug for the same indication or
disease before us, we would be prohibited from obtaining approval for our product for seven or more years, unless our product can be shown to be clinically superior.
If we obtain orphan exclusivity for a product, the FDA may approve another product during our orphan
exclusivity period for the same indication under certain circumstances.
The Orphan Drug Act was created to encourage companies to develop therapies for rare diseases by providing incentives for drug development and
commercialization. One of the incentives provided by the act is seven years of market exclusivity in the U.S. for the first product in a class licensed for the treatment of a rare disease. Orphan
exclusivity does not, however, bar approval of another product under certain circumstances. One such circumstance is if a product with the same active ingredient is proven safe and effective for a
different indication. Another circumstance is if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of
greater efficacy or safety, or providing a major contribution to patient care. The FDA may also approve another product with the same active ingredient and the same indication if the company with
orphan drug exclusivity is not able to meet market demand. Further, the FDA may approve more than one product for the same orphan indication or disease as long as the products contain different active
ingredients. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same
indication or disease. All of the above circumstances could create a more competitive market for us and could have a material adverse effect on our business.
Our research, development and manufacturing activities used in the production of ALIS involve the use of
hazardous materials, which could expose us to damages, fines, penalties and sanctions and materially adversely affect our results of operations and financial condition.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our research and development program and manufacturing activities for ALIS and our other product candidates involve
the controlled use of hazardous materials and chemicals. We generally contract with third parties for the disposal of these materials and wastes. Although we strive to comply with all pertinent
regulations, we cannot eliminate the risk of environmental contamination, damage to facilities or injury to personnel from the accidental or improper use or control of these materials. In addition to
any liability we could have for any misuse by us of hazardous materials and chemicals, we could also potentially be liable for activities of our CMOs or other third parties. Any such liability, or
even allegations of such liability, could materially adversely affect our results of operations and financial condition. We also could incur significant costs associated with civil or criminal fines
and penalties.
In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations
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may
impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
We may be subject to product liability claims, and we have only limited product liability insurance.
The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims, which can lead to significant
adverse publicity and obligations to pay damages. We currently have only limited product liability insurance for our products. We do not know if we will be able to maintain existing, or obtain
additional, product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms.
If we are unable to obtain or maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our
products. A successful product liability claim brought against us in excess of our insurance coverage, if any, may require us to pay substantial amounts and may materially adversely affect our
business, financial condition, results of operations and prospects and the value of our common stock.
Risks Related to Employee Matters and Managing Growth
We are dependent upon retaining and attracting key personnel, the loss of whose services could materially
adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
We depend heavily on our management team and our principal clinical and commercial personnel, the loss of whose services might significantly
delay or prevent the achievement of our research, development or business objectives. Our success depends, in large part, on our ability to attract and retain qualified management, clinical and
commercial personnel, and on our ability to develop and maintain important relationships with commercial partners,
leading research institutions and key distributors. We plan to hire additional personnel in anticipation of seeking regulatory approval for and commercial launch of ALIS.
Competition
for skilled personnel in our industry and market is very intense because of the numerous pharmaceutical and biotechnology companies that seek similar personnel. These
companies may have greater financial and other resources, offer a greater opportunity for career advancement and have a longer history in the industry than we do. We also experience competition for
the hiring of our clinical and commercial personnel from universities, research institutions, and other third parties. We cannot assure that we will attract and retain such persons or maintain such
relationships. Our inability to retain and attract qualified employees would materially harm our business, financial condition, results of operations and prospects and the value of our common stock.
We expect to expand our development, manufacturing, regulatory and future sales and marketing capabilities,
and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect that our potential expansion into areas and activities requiring additional expertise, such as further clinical trials, governmental
approvals, manufacturing, sales, marketing and distribution will place additional requirements on our management, operational and financial resources. Future growth would impose significant added
responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate
amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these
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growth
activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business
opportunities, loss of employees and reduced productivity among remaining employees.
The
anticipated commercialization of ALIS and the development of additional product candidates will require significant expenditures by us and place a strain on our resources. If our
management is unable to effectively manage our activities in anticipation of commercialization, as well as our development efforts, we may incur higher than expected expenditures or other expenses and
our business may otherwise be adversely affected.
Risks Related to Our Common Stock and Listing on the Nasdaq Global Select Market
The market price of our stock has been and may continue to be highly volatile.
Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol "INSM". The market price of our stock has been and may
continue to be highly volatile, and could be subject to wide fluctuations in price in response to various factors, including those discussed herein, many of which are beyond our control. In addition,
the stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and pharmaceutical companies
like us, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock. Historically, when the market
price of a stock has been volatile, shareholders are more likely to institute securities and derivative class action litigation against the issuer of such stock. As described below, a securities class
action lawsuit was initiated against us during 2016 following a decline in our stock price.
We, certain of our executive officers and directors and the underwriters from a prior securities offering are
subject to a securities class action lawsuit, which may require significant management and board time and attention and significant expense to us and result in an unfavorable outcome, which could have
a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.
We, certain of our executive officers and directors and the underwriters from a prior securities offering have been named as defendants in a
securities class action lawsuit initially filed on July 15, 2016. The amended complaint, filed December 15, 2016, alleges that we and certain of our executive officers and directors
violated Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and that we, certain of our executive officers and the underwriters violated
Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder of the Exchange Act, by making materially false and misleading
statements and omissions relating to the development of ALIS and/or related requests for regulatory approval. It also alleges that the defendant officers and directors violated Section 15 of
the Securities Act and that the defendant officers violated Section 20(a) of the Exchange Act. For additional information, see Note 9, Commitments and Contingencies, in Item 1 of
Part 1 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. While we believe that we have substantial legal and factual defenses to the claims in the class
action and intend to
vigorously defend the case, this lawsuit could divert our management's and board's attention from other business matters, the outcome of the pending litigation is difficult to predict and quantify,
and the defense against the underlying claims will likely be costly. The ultimate resolution of this matter could result in payments of monetary damages or other costs, materially and adversely affect
our business, financial condition and results of operations, and adversely affect our reputation and prospects, and consequently, could negatively impact the value of our common stock.
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We
have insurance policies related to the risks associated with our business, including directors' and officers' liability insurance policies. However, there is no assurance that our
insurance coverage will be sufficient or that our insurance carriers will cover all claims in that litigation. If we are not successful in our defense of the claims asserted in the putative action and
those claims are not covered by insurance or exceed our insurance coverage, we may have to pay damage awards, indemnify our executive officers and directors from damage awards that may be entered
against them and pay the costs and expenses incurred in defense of, or in any settlement of, such claims. In addition, we are indemnifying the underwriters that are party to this action against the
claims asserted against them, and these costs and expenses might not be covered by insurance.
In
addition, there is the potential for additional shareholder litigation against us, and we could be materially and adversely affected by such matters.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and
arrangements between us and our employees could hamper a third party's acquisition of, or discourage a third party from attempting to acquire control of us.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements with our employees could
hamper a third party's acquisition of, or discourage a third party from attempting to acquire control of, us or limit the price that investors might be willing to pay for shares of our common stock.
These provisions or arrangements include:
-
-
The ability to issue preferred stock with rights senior to those of our common stock without any further vote or action by the holders of our
common stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock or could adversely affect the rights and
powers, including voting rights, of the holders of our common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock.
-
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The existence of a staggered board of directors in which there are three classes of directors serving staggered three-year terms, thus
expanding the time required to change the composition of a majority of directors.
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The requirement that shareholders provide advance notice when nominating director candidates to serve on our Board of Directors.
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The inability of shareholders to convene a shareholders' meeting without the chairman of the board, the president or a majority of the board of
directors first calling the meeting.
-
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The prohibition against entering into a business combination with the beneficial owner of 10% or more of our outstanding voting stock for a
period of three years after the 10% or greater owner first reached that level of stock ownership, unless certain criteria are met.
-
-
In addition to severance agreements with our officers and provisions in our incentive plans that permit acceleration of equity awards upon a
change in control, a severance plan for eligible full-time employees that provides such employees with severance equal to six months of their then-current base salaries in connection with a
termination of employment without cause upon, or within 18 months following, a change in control.
We
previously had a shareholder rights plan, or "poison pill", which expired in May 2011. Under Virginia law, our Board of Directors may implement a new shareholders' rights plan
without shareholder approval. Our Board of Directors intends to regularly consider this matter, even in the absence of specific circumstances or takeover proposals, to facilitate its future ability to
quickly and effectively protect shareholder value.
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Other Risks Related to Our Business
We have limited experience operating internationally, are subject to a number of risks associated with our
international activities and operations and may not be successful in our efforts to expand internationally.
We currently have limited operations outside of the U.S. As of June 30, 2017, we had 24 employees located in Europe, and we have
suppliers located around the world. In order to meet our long-term goals, we will need to grow our international operations over the next several years, including in Japan, and continue to source
material used in the manufacture of our product candidates from abroad. Consequently, we are and will continue to be subject to additional risks related to operating in foreign countries,
including:
-
-
Our limited experience operating our business internationally;
-
-
An inability to achieve the optimal pricing and reimbursement for ALIS or subsequent changes in reimbursement, pricing and other regulatory
requirements;
-
-
Any implementation of, or changes to, tariffs, trade barriers and other import-export regulations in the U.S. or other countries in which we
operate;
-
-
Unexpected adverse events related to ALIS or our other product candidates occurring in foreign markets that we have not experienced in the
U.S.;
-
-
Economic and political conditions, including geopolitical events, such as war and terrorism, foreign currency fluctuations and inflation, which
could result in increased or unpredictable operating expenses and reduced revenues and other obligations incident to doing business in, or with a company located in, another country;
-
-
Changes resulting from (i) the uncertainty and instability in economic and market conditions caused by the UK's vote to exit the
European Union; and (ii) the uncertainty regarding how the UK's access to the EU Single Market and the wider trading, legal, regulatory and labor environments will be impacted by the UK's vote
to exit the European Union, including the resulting impact on our business; and
-
-
Compliance with foreign or U.S. laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws,
anticompetition regulations, import, export and trade restrictions, anti- bribery/anti-corruption laws, regulations or rules, which could lead to actions by us or our licensees, distributors,
manufacturers, other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could subject us to investigation or prosecution
under such foreign or U.S. laws.
These
and other risks associated with our international operations may materially adversely affect our business, financial condition, results of operations and prospects and the value of our common
stock.
Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer
security breaches, which could result in a material disruption of our business operations, including our drug development programs.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions
in our operations, it could result in a material adverse effect on our business operations, including a material disruption of our drug
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development
programs. Unauthorized disclosure of sensitive or confidential client or employee data, whether through breach of computer systems, systems failure, employee negligence, fraud or
misappropriation, or otherwise, could damage our reputation. Similarly, unauthorized access to or through our information systems and networks, whether by our employees or third parties, could result
in negative publicity, legal liability and damage to our reputation. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of our product candidates could
result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss
of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could
be delayed.
Although
we have general liability insurance coverage, including coverage for errors or omissions, our insurance may not cover all claims, continue to be available on reasonable terms
or be sufficient in amount to cover one or more large claims; additionally, the insurer may disclaim coverage as to any future claim. The successful assertion of one or more large claims against us
that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could
have a material adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.
We are subject to the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other anti-corruption laws
and trade control laws, as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to negative publicity, civil or criminal penalties, other remedial
measures, and legal expenses, which could adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act ("FCPA"), the UK Bribery Act and other
anticorruption laws that apply in countries where we do business. The FCPA, UK Bribery Act and these other laws generally prohibit us, our employees and our intermediaries from making prohibited
payments to government officials or other persons to obtain or retain business or gain some other business advantage. We have conducted the CONVERT study at more than 125 sites in 18 countries, and we
are conducting the 312 study and plan to conduct the WILLOW study, our global phase 2 study of INS1007 in non-CF bronchiectasis, at a broad range of trial sites around the world. Certain of
these jurisdictions pose a risk of potential FCPA violations, and we have relationships with third parties whose actions could potentially subject us to liability under the FCPA or local
anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which
existing laws might be administered or interpreted.
We
are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce's Bureau of Industry and
Security, the U.S. Department of Treasury's Office of Foreign Assets Control, and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries
and persons, customs requirements, currency exchange regulations and transfer pricing regulations (collectively, "Trade Control laws").
We
may not be effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not
in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal
expenses, which could have an adverse impact on our business, financial condition, results of
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operations
and prospects and the value of our common stock. Likewise, even an investigation by U.S. or foreign authorities of potential violations of the FCPA other anti-corruption laws or Trade
Control laws could have an adverse impact on our reputation, business, financial condition, results of operations and prospects and the value of our common stock.
Risks Related to This Offering
Our management will have broad discretion over the actual amounts and timing of the expenditures of the
proceeds we receive in this offering and might not apply the proceeds in ways that enhance our operating results or increase the value of your investment.
We intend to use the net proceeds from this offering to fund ongoing and future clinical development of ALIS for patients with refractory NTM
lung disease caused by MAC and our efforts to obtain potential regulatory approvals for, and, if approved, commercialize ALIS in its approved indication; invest in increased third-party manufacturing
capacity for and commercial inventory production of ALIS in anticipation of possible commercial launch, initially in the United States and subsequently in Japan and other countries; fund further
clinical development of INS1007; and fund working capital, potential debt repayment, capital expenditures, general research and development, and for other general corporate purposes, which may include
the acquisition or in-license of additional compounds, product candidates, technology or businesses. This expected use of the net proceeds from this offering represents our intentions based upon our
current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the success of our clinical development efforts
and any potential commercialization efforts, as well as any strategic transactions that we may enter into with third parties, and any unforeseen cash needs. Because of the number and variability of
factors that will determine our use of the proceeds from this offering, their ultimate use may vary substantially from their currently intended use. As a result, our management will retain broad
discretion over the allocation of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our financial condition or operating results or enhance the
value of our common stock and your investment therein. Additionally, until the net proceeds we receive are used, they may be placed in investments that do not produce income or that lose value. See
"Use of Proceeds" for additional information.
If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the
book value of your shares.
The public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock as of
June 30, 2017. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share
immediately after this offering. After giving effect to the sale of 12,281,000 shares of our common stock in this offering at the public offering price of $28.50 per share and based on our net
tangible book value as of June 30, 2017 of $0.40 per share, if you purchase shares of common stock in this offering, you will suffer substantial and immediate dilution of $23.76 per share in
the net tangible book value of the common stock. Further dilution of your investment will result from, among other things, the future exercise of outstanding options and vesting of restricted stock
units. See "Dilution" for a more detailed description of the dilution investors purchasing shares of our common stock in the offering will incur.
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A significant portion of our total outstanding shares may be sold into the market at any time, which could
cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. Such sales, or the perception in the
market that the holders of a large number of such shares intend to sell, could reduce the market price of our common stock significantly. Upon the completion of this offering, we and our executive
officers and directors will be subject to lock-up agreements with the managers of the underwriters that prohibit us and such executive officers and directors, subject to certain exceptions or receipt
of the prior written consent of the managers, from disposing or pledging, or hedging against, our common stock or securities convertible into or exchangeable for shares of our common stock for a
period of 90 days, with respect to us, and 60 days with respect to our executive officers and directors, after the date of this prospectus supplement. However, all of the shares sold in this offering
and the remaining shares of our common stock outstanding immediately prior to this offering will not be subject to lock-up agreements with the managers of the underwriters and, except to the extent
such shares are held by our affiliates, will be freely tradable without restriction. In addition, the managers of the underwriters may, in their discretion, release the lock-up restrictions described
above at any time without notice.
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